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Robust domestic demand lifts U.S. trade deficit to record high

Economic IndicatorsMay 04, 2021 04:12PM ET
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© Reuters. FILE PHOTO: Ships and shipping containers are pictured at the port of Long Beach in Long Beach, California, U.S., January 30, 2019. REUTERS/Mike Blake/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. trade deficit jumped to a record high in March amid roaring domestic demand, which is drawing in imports, and the gap could widen further as the nation's economic activity rebounds faster than its global rivals.

Manufacturers lack the capacity to satisfy the surge in demand because of resource constraints and bottlenecks in the supply chain. Inventories are very lean. Demand is being driven by a rapidly improving public health situation and massive government aid to households and businesses to cushion the blow from the COVID-19 pandemic.

"The widening of the trade gap will likely be a persistent feature of the economy this year as domestic demand outstrips the U.S. economy's productive capacity," said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

The trade deficit increased 5.6% to an all-time high of $74.4 billion in March, the Commerce Department said on Tuesday. The trade gap was in line with economists' expectations.

Imports soared 6.3% to a historic $274.5 billion in March. Goods imports shot up 7.0% to $234.4 billion, also an all-time high. Imports of consumer goods were the highest on record, as were those for food and capital goods.

The nation imported a range of goods including apparel, furniture, toys, semiconductors, motor vehicles, petroleum products and telecommunications equipment. But imports of civilian aircraft and cellphones fell.

The government has provided nearly $6 trillion in pandemic relief over the past year. Americans over the age of 16 years are now eligible to receive the COVID-19 vaccine. Demand during the pandemic shifted to goods from services, with Americans cooped up at home. The economic boom is also being boosted by the Federal Reserve's ultra-easy monetary policy stance.

Stocks on Wall Street were trading lower. The dollar rose versus a basket of currencies. U.S. Treasury prices were higher.

EXPORTS GAIN GROUND

The bulk of imports in March came from China, boosting the politically-sensitive goods trade deficit with Beijing to $27.69 billion from $24.62 billion in February, reversing a tariffs-driven improvement during the Trump administration.

"The widening in the trade balance with China over the last few months has erased the tightening that occurred over 2019 as a result of tariffs," said Veronica Clark, an economist at Citigroup (NYSE:C) in New York.

Imports from Mexico hit a record high in March, as did those from South Korea.

Exports accelerated in March, but continued to lag the growth in imports. Exports surged 6.6% to $200.0 billion. Exports of goods vaulted 8.9% to $142.9 billion.

They were led by industrial supplies and materials and capital and consumer goods. The pandemic remained a drag on trade services, especially travel. At $17.1 billion in March, the services surplus was the smallest since August 2012.

Exports are expected to pick up later this year as global economic growth gains steam, allowing foreigners to buy more American goods. The resumption of international travel and in-person learning at U.S. universities in the fall is likely to result in an improvement in services trade.

"As vaccinations gain more momentum abroad and the global recovery gains pace, trade should begin to normalize," said Jay Bryson, chief economist at Wells Fargo (NYSE:WFC) in Charlotte, North Carolina. "Export growth should begin to rival import growth, which will remain supported by a surge in domestic consumer and business demand."

Robust demand is boosting manufacturing. A separate report from the Commerce Department on Tuesday showed factory orders increased 1.1% in March after falling 0.5% in February. Business spending on equipment was also stronger than initially thought.

Despite the widening of the trade deficit, the economy grew at a 6.4% annualized rate in the first quarter, the second-fastest gross domestic product growth pace since the third quarter of 2003, fueled by pent-up domestic demand. That followed a 4.3% growth pace in the fourth quarter.

Most economists expect double-digit GDP growth this quarter, which would position the economy to achieve growth of at least 7% in 2021, which would be the fastest since 1984. The economy contracted 3.5% in 2020, its worst performance in 74 years.

"The U.S. economy is poised to re-emerge from the pandemic early and forcefully thanks to a swift vaccination campaign," said Evan Karson, an economist at Moody's (NYSE:MCO) Analytics in West Chester, Pennsylvania.

Robust domestic demand lifts U.S. trade deficit to record high
 

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Comments (6)
Wayne Gillispie
Wayne Gillispie May 04, 2021 12:54PM ET
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Exports are expected to pick up? Really. What do manufacture that isn’t made up from 90% outside sourced goods? They can get most of that cheaper elsewhere for the same low quality product.
Wayne Gillispie
Wayne Gillispie May 04, 2021 12:50PM ET
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Now that we can go straight to the source online, why go through resellers in the USA selling the same low quality, throw away products that change models, names, owners every few years, making their warranties worthless.
Wayne Gillispie
Wayne Gillispie May 04, 2021 12:46PM ET
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Let me simplify it for you. We here in the USA over the last 25 yrs have govt and corp leadership that have put profits ahead of quality, dependsble goods and the employees. They put stocks, multi million dollar salaries/multiple homes and bizjets ahead of the security of our nation. Now that we have made the bed boys, enjoy sleeping in it.
Investing Man
Investing Man May 04, 2021 12:46PM ET
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Well said. The trickle down was always a trickle uo
ben sc
ben sc May 04, 2021 10:04AM ET
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Translation: stimulus funds wind up in foreign pockets
Kaveh Sun
Kaveh Sun May 04, 2021 9:21AM ET
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Reuters spins. It is below forcast. stimi money flow to China.
Hunt Richardson
Hunt Richardson May 04, 2021 9:08AM ET
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so is that good or bad, is it harmful?
Show previous replies (2)
Chris Fran
Chris Fran May 04, 2021 9:08AM ET
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Hans... debt pile? public or private? monterary or fiscal? who cares! debt is debt?!?! lol... dude I recommend you take econ101... at a community college for remedial students. trade deficit has nothing to do with public debt
Chris Fran
Chris Fran May 04, 2021 9:08AM ET
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Hans... debt pile? public or private? monterary or fiscal? who cares! debt is debt?!?! lol... dude I recommend you take econ101... at a community college for remedial students. trade deficit has nothing to do with public debt
Chris Fran
Chris Fran May 04, 2021 9:08AM ET
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Hunt, the US has always been a consumer based economy in modern times. we consume via import than we produce via export. it has nothing to do with the national public debt which is dependent on govt spending. don't listen to these Trump wackos who equates trade deficit to public sovereign debt
Picaso Fish
Picaso_Fish May 04, 2021 9:08AM ET
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So let me get this straight, you think there is no connection between what you produce and how much you should be able to consume? Is the biblical idea of reaping before you sow just communist propaganda?
Picaso Fish
Picaso_Fish May 04, 2021 9:08AM ET
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The stimi cheques, I think are leading to increased imports. logically, then there is an connection between stimulus spending and trade deficits.
 
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